Trusts and Tax

We have a full glossary of all the different terminology used in relation to trusts. Download our Trust Glossary in our Trust Guide for more information. 

Yes, multiple policies can be written into the same trust providing it is the same settlor, same Life Assured and the same terms regarding any retained benefits.

No, the settlor should complete this and provide this to their chosen trustees.

A Letter of Wishes is used to guide the trustees in exercising their discretion in distributing the trust fund. The settlor can send us a copy of the letter to store with their trust if they wish. Although, they do not have to in the same way they would with the Trust Deed or Deed of Appointment of Additional Trustees.

The owner of the policy is the settlor. For Relevant Life Policies, the settlor is the employer and they will be the initial trustee. For Inheritance Tax purposes, the life assured is treated as being the settlor.

We require a copy of the marriage certificate or the change of name deed to store with the trust.

Witnesses should be over 18, independent and of sound mind. The spouse of the settlor and the beneficiaries should not act as witnesses. Also, the settlor and additional trustees should not cross-witness as their independence could be challenged which could open a question of validity.

Trustees have a variety of duties, including acting in the best interest of the beneficiaries and protecting the trust fund. Find out more by downloading our Trustee Guide.

The settlor reserves the power to do this in their lifetime. Once the initial additional trustees have been appointed, future changes can be made in the Deed of Appointment/Retirement/Removal of Trustees.

The Settlor will be the initial trustee but on their death we will need a surviving trustee to act to receive the funds upon claim. If none, the trust will still be valid and the favourable IHT treatment will not be impacted. However, the speed of payment benefit will be lost as the grant of probate will be required to appoint trustees.

For joint life second death policies, both settlors will be the initial trustees but they will need to appoint at least one other additional trustee to act when the Life Cover pays out.

In Scotland, an additional trustee is required at inception to satisfy local validity rules which require the delivery/vesting of the policy with the trustees which is effected in the Deed of Appointment of Additional Trustees.

A trustee who is also a beneficiary of the trust can benefit from the trust providing that they act with another independent trustee (who does not benefit), this is a term of the trust. This requirement is to avoid a potential conflict of interests for the trustee, who is also beneficiary, as there are other potential beneficiaries of the trust who should be considered and trustees must act impartially and not in their own interest.

The broad class of potential beneficiaries of the trust are set out in Part C(2) of the trust document. The trustees can decide who to exercise their discretion in favour of within this class during the 125 year trust period. Clients can provide guidance to their trustees as to who to benefit and when, they can do this in the draft non-legally binding side letter of wishes that we can provide. New beneficiaries can be nominated in writing to the trustees which gives flexibility to change beneficiaries.

At the end of the 125 year trust period the default beneficiaries (in practice their estates) would be entitled to any funds remaining in the trust. They cannot be changed.

The default beneficiaries are the individuals or charities who will benefit from any remaining funds in the trust after expiry of the 125 year trust period.

If this section is not completed, the trust is not invalidated. It simply means a resulting trust may arise with adverse consequences for the Settlor’s estate.

A default position has been introduced from June 2014 to both the Discretionary trust and the Relevant Life Policy trusts to cover this remote scenario, although this may not reflect your clients wishes and they should still complete the default beneficiaries section.

Your clients can decide whether to retain or gift the terminal illness benefits should an entitlement arise. Clients must initial the Retained Fund section at Part B(4a) on the trust if they want to be able to access these benefits.

A default position has been introduced from June 2014 to both the Absolute and Discretionary trusts to reflect that in the absence of an election to retain the benefits, the terminal illness benefits will be treated as gifted (unless it is a Joint Life First Death plan and the 30 day reversion to settlor wording has been selected, in which case the terminal illness benefits will be retained).